The Supreme Court of the United States recently released a sentencing decision that bears significantly on corporate defendants in criminal antitrust and other white collar matters. See Southern Union Co. v. U.S., 567 U.S. ____ (2012). By extending to criminal fines the Sixth Amendment protection embodied in the landmark decision of Apprendi v. New Jersey, 530 U.S. 466 (2000), the Court curtailed the discretion of trial courts to impose criminal fines beyond the statutory maximum absent specific fact-finding by a jury, and held that facts increasing the fine must be proved by the government beyond a reasonable doubt. This ruling significantly increases the government's burden at sentencing.
In Apprendi, the Court held that the Sixth Amendment's jury-trial guarantee requires any fact (other than the fact of a prior conviction) that increases a criminal penalty beyond the statutory maximum to be proved to a jury beyond a reasonable doubt. The Court's ruling in Southern Union is of particular importance for organizational defendants who may be subject to significant fines in corporate criminal investigations. In the past, sentencing decisions under the Federal Sentencing Guidelines were left to the judge to determine, and the government's burden was to prove sentencing facts by a preponderance of the evidence. With Apprendi, however, the Court found that facts which increase the sentence must instead be determined by a jury under the more stringent evidentiary burden of proof beyond a reasonable doubt. The question in Southern Union was whether Apprendi applied to criminal fines, and specifically criminal fines applicable to corporate defendants.
In 2007, a federal jury in Rhode Island convicted Southern Union Co., a natural gas distributor, of one count of violating the Resource Conservation and Recovery Act of 1976 (RCRA), a federal environmental statute. The violation and conviction stemmed from actions by Southern Union's subsidiary, which was found to have knowingly stored liquid mercury at a Rhode Island facility without a permit. Although indicted on several counts, Southern Union was convicted on only one count. The company was specifically found guilty of unlawfully storing liquid mercury "on or about September 19, 2002 to October 19, 2004." Southern Union Co., slip op. at 2. Violations of the RCRA are punishable by "a fine of not more than $50,000 for each day of violation." Id.
At sentencing, the probation office calculated a maximum fine of $38.1 million based on its belief that Southern Union's violation had lasted 762 days — from September 19, 2002, through October 19, 2004. Southern Union objected to the calculation, arguing that the jury had not been asked to determine the precise duration of the violation and that the approximate start date listed in the verdict form and in the court's jury instructions permitted conviction if the jury found even a one-day violation. Accordingly, Southern Union argued the jury had not specifically found that the violation lasted more than one day — let alone 762 — and the imposition of any fine greater than the one-day penalty of $50,000 would require fact-finding by the court in contravention of Apprendi.
Conceding that the jury had not been not asked to specify the duration of the violation, the government instead argued that Apprendi did not apply to criminal fines. Rejecting the government's position, the sentencing court found that Apprendi did apply, but imposed penalties of $18 million, finding that the jury indeed had found a 762-day violation. On appeal, the First Circuit rejected the district court's conclusion that the jury necessarily had found a 762-day violation, but affirmed the sentence on the grounds that Apprendi did not apply to criminal fines.
The Supreme Court reversed the First Circuit's judgment, explaining that "[i]n stating Apprendi's rule, we have never distinguished one form of punishment from another." Id. at 5. Instead, Apprendi and its progeny "broadly prohibit judicial factfinding that increases maximum criminal sentences, penalties, or punishments – terms that each undeniably embrace fines." Id. (citations and internal quotations omitted). The Court made clear, however, that where a criminal fine is so insubstantial (or where a term of imprisonment is so brief) that the underlying offense is considered "petty," the Sixth Amendment right of jury trial is not triggered and no Apprendi issue arises.
What This Means for You
The Southern Union decision is particularly important in white collar matters, where corporate defendants may be facing significant financial penalties. See 18 U.S.C. § 3571(d) (indicating that fines may be imposed equal to twice the gain or loss resulting from the conduct). This comes into play in cases involving the Sherman Act antitrust laws (price fixing), the Foreign Corrupt Practices Act (FCPA), the False Claims Act (FCA), federal securities laws, insider trading and other matters. The Supreme Court specifically recognized the potential for these calculations to quickly become exorbitant, noting that the "federal twice-the-gain-or-loss statute, in particular . . . has been used to obtain substantial judgments against organizational defendants," and specifically cited an antitrust prosecution in San Francisco federal court. Southern Union Co., slip op. at 6-7 (citing U.S. v. LG Display Co., Ltd., No. 08-CR-803-SI (ND Cal.), which involved cartel activity in the thin-film transistor liquid crystal display panel ("TFT-LCD") markets).
It is frequently the case that the government — with significant bargaining power over corporate entities seeking to avoid criminal convictions — takes overly aggressive positions concerning the amount of gain or loss that supposedly resulted from activity under investigation. Since gain or loss can be difficult to prove specifically, the new decision could alter the nature of negotiations with the U.S. Department of Justice in both contested matters and negotiated resolutions. Specifically, it gives white collar and antitrust attorneys more leverage in representing corporate defendants in these kinds of bet-the-company matters.
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